An $18 billion increase in spending creates $18 billion of new income in the first round of the multiplier process and $13.5 billion in the second round. The multiplier in the economy is
A. 2.
B. 3.
C. 4.
D. 5.
Answer: C
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Refer to Figure 10.2. Assume the economy is initially at equilibrium at potential GDP of $500 billion. If the MPC = 0.80 , and real GDP falls to Y2 = $400 billion, the vertical distance between AE1 and AE2 must be
A) $8 billion. B) $20 billion. C) $80 billion. D) $100 billion.
Pretty Polly produces dresses for little girls. At its current advertising level, Pretty Polly's marginal cost of advertising is $500,000 and their marginal benefit is $750,000. Which of the following is true?
A) If the firm increases the amount of advertising, its net profits will decrease. B) The firm is currently maximizing its net profit. C) The firm should increase the amount of advertising to increase its net profit. D) The firm should reduce the amount of advertising to increase its net profit.
The classic example of a public good is a lighthouse. Explain why lighthouses were provided by government
Suppose a McDonalds Big Mac costs $4.40 in the United States and 3.30 euros in the euro area and 5.72 Australian dollars in Australia. If exchange rates are .75 euros per dollar and 1.3 Australian dollars per dollar, where does purchasing-power parity hold?
a. both the euro area and Australia b. the euro area but not Australia c. Australia but not the euro area d. neither the euro area nor Australia